International credit-rating agency Fitch Ltd. said Monday that it has downgraded Japan's long-term local and foreign currency sovereign ratings to AA from AA-plus, with the negative outlook intact.
"Japan's credit fundamentals continue to deteriorate. The world recession has robbed the economy of its only bright spots in recent years, i.e., exports and high-tech investment," the agency said in a statement. It added Japan's short-term foreign currency rating is unchanged at F1-plus.
Fitch said the Japanese government has continued to borrow roughly 8 percent of gross domestic product in a "largely vain attempt" to kick-start the economy.
"This has seen gross government debt rise above 140 percent of GDP and Fitch expects it to exceed 150 percent by the end of 2002," it said, adding the borrowing could even approach 200 percent of GDP by 2007 if there is no major change in Japanese policies.
In September, other major rating agencies -- Moody's Investors Service Inc. and Standard & Poor's Corp. -- said they may downgrade Japan's sovereign ratings.
Fitch said Japan is facing worsening deflation and the only way left for it now to deal with this situation would be a sharp weakening of the yen.
"There is now precious little scope for using interest rate policy or quantitative monetary easing to combat deflation, but a sharp weakening of the yen would help," it said.